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Lawmakers press DNR's Sullivan on Cook Inlet production

Looking for answers to soothe constituent concerns, lawmakers pressed a top state resource official Wednesday about why there isn’t more production of natural gas coming from Cook Inlet despite years of effort and incentives.

In recent days, state legislators — especially those who serve in energy or resource committees in both houses — have voiced concern about Cook Inlet’s declining gas production levels, utilities clamoring about looming gas shortages and a perceived disconnect between utilities’ and the state officials’ perception of available gas in the basin.

Dan Sullivan, Alaska Department of Natural Resources commissioner, said his department is looking at, and has worked, a lot of areas to increase gas production including using its regulatory leverage on units, working on smoothing permitting processes and working to sell Cook Inlet and its potential to companies, even if it takes a “cold call,” he said.

“We’re all over it,” Sullivan said Wednesday before the House Energy Committee.

DNR has been “very aggressive” in seeking potential investors and companies to come to the area in the last several years — a different strategy from the way the department has usually done business, Sullivan said, adding those efforts have been largely successful in his opinion.

Sullivan stressed that while his department is promoting the inlet’s potential to investors, and is currently presenting information that talks about resource, reserve, and potential gas rather than what’s currently under contract to utilities, DNR does recognize the seriousness of a gas shortage.

But, Sullivan stressed Cook Inlet is not a depleted basin and his department wants to make that case to companies that have a strong background in turning around declining basins and who have large capital with expertise to match.

“That’s exactly what we have been doing,” he said. “I’m going next week to do more of it. And two of the most prominent companies in Cook Inlet right now, when we heard they were sniffing around, thinking about coming up here, we went down to Houston and pitched their CEOs. Apache and Hilcorp. We said, ‘We think we have a basin that presents opportunities, we have a lease sale coming up, here are the terms, we welcome you guys to be a part of this effort.’

“Some of the most important things we have going on is that those two companies are here spending hundreds of millions of dollars on trying to bring that resource to market.”

Sullivan also said his department was using leasing and unitization leverage over companies to make sure they are drilling more and producing more.

A unit is an agreement between the state and the applicant that bundles state leases once oil and gas discoveries are proved up through drilling and testing. Unitization benefits the state by ensuring development and production and preventing waste. Oil companies benefit from unitization as the terms of their leases on the land are extended for longer periods to provide long term production security.

“You want a unit? Well we want three more wells drilled,” Sullivan said. “Using the leverage that is provided by the statute with our discretion to leverage more action and I think we are using that in a way that certainly hasn’t been used in Cook Inlet before.”

Rep. Charisse Millett, R-Anchorage, asked Sullivan about “mixed messages” over immediate contracts for gas — while utilities say 2014 is the start of the end, DNR is promoting the surge of activity and exploration that hasn’t yet led to gas contracts.

“I don’t want to make my constituents feel comfortable that tomorrow we’ll have a gas contract if that is not the truth,” said Millett, who co-chairs the House Energy committee.

Sullivan said all DNR can do is encourage production for the contract to take place as the contracts themselves are private business agreements.

“It is tough for us to say we can guarantee it or we can’t,” he said. “What we have been trying to do is set up the situation where that can happen. … But we certainly don’t think the challenges don’t exist.”

Rep. Mike Hawker, R-Anchorage, echoed Millett’s sentiments that utilities seem to have a “whole different area of concern for our community than do the regulators.”

“Which ones should I be listening to and should not the utilities be looking at alternatives to meet our needs?” he said.

Said Sullivan, “Everybody should be taking measures to make sure we have energy security for the inlet and Alaskans period. That is not in dispute.”